Saturday, October 24, 2009

SMEs - SMEs and creativity

SME owners are all creative! It is often suggested that if you are not creative you will not be likely to succeed as an entrepreneur.

I believe that this is generally overstated. I may well be wrong on this but I have another suggestion on what makes entrepreneurs succeed. They are opportunity aware. They never stop looking for opportunities. They actively look for them. They are not passively waiting for the order. They are deal makers not order takers.

Initially they tend to see mainly "deals" which they are able to close. As they progress so they become able to see deals in other sectors/industries, which leads to diversification (portfolio entrepreneurship). As they proceed further, depending on how well read they are in business in general, so they become better at putting greater "creativity" into the finding/creating of opportunities.

Once they become extremely well versed at this, so they are able to identify structural holes. This is when supply and demand exist, but there is no market mechanism to trade. The ultimate entrepreneur is able to identify the structural holes and close the hole by creating the ultimate creative solution based upon his /her vast knowledge base.

Sunday, June 21, 2009

SMEs - Step 8 more detail on the marketing plan

When preparing the marketing plan as part of a business plan, a key component is the income budget. The idea is that the marketing department predict sales and therefore need to prepare a sales and cost of sales budget for the financial department. This will include advertising and the rest of the marketing budget as well.

It is critical that the sales budget be done first if a SME, or by the two different departments, marketing and finance, if a larger business.

Too often SMEs make the mistake of juggling sales to meet the overheads. This is a recipe for disaster. The first budget is normally based upon your understanding of the market, and therefore should not be altered to "make ends meet". Go with your gut feel if you are an SME, as quite often it is all you have to go on, as you most likely do not gather and keep marketing data for analysis.

If you find that there are insufficient sales to meet your overheads and desired profits, then review your strategy and see what can be done to change your strategy to improve sales. There must be a change of strategy to increase the sales, not simply a change in sales.

Remember this important part of the process when doing your marketing plan - it could be the difference between success and survival.

Sunday, June 14, 2009

SMEs - Step 8 the marketing plan

Marketing is the key to business success, because marketing drives revenues.

No matter how well run your business is, without sales there is no business. So the focus on the marketing plan is critically important. For those who want to know more, read Kotler. He presents marketing in a simple to understand format.

Marketing is best when it is proactive rather than reactive. The purpose is to get ahead of your competitors by creating competitive advantage. This means knowing and understanding your competitors extremely well. Do you know yours? Do you know how they will react to your efforts to gain market share? How can you gain market share without creating a war with your competitors? Therefore we will look at different aspects of marketing over a period of time.

Marketing is such a deep subject that it is impossible to discuss in depth in a weekly blog. Start reading Kotler and Michael Porter. Understand the use of Ansoffs model together with Kotlers synergy rules and the BCG matrix.

Marketing is not difficult and complex, to the extent that it cannot be done by the SME owner. It is simply that it requires full attention in an ongoing manner. It is not something that happens on its own, but requires constant attention and tweaking to meet changing circumstances.

Sunday, June 7, 2009

SMEs - tips for the strategy process

SMEs are generally terrible at planning. I use an example with my students. Would you leave work, go home, pack whatever clothes are in the cupboard, take whatever cash is in your pocket, get in your car, drive until you run out of petrol, and then have a holiday wherever you run out of petrol. The answer is always no. And yet most SME owners run their businesses in this way.

They simply arrive each day in the hope of sales arriving. There is no plan. No strategy. No direction. There is simply ever-fading hope.

You need to read as widely as possible in order to ensure your strategy is informed by your environment. A PESTEL analysis is not a once-off annual event, but rather a way of life. It is about knowing and understanding what is happening at all times. How often do you hear businesses who are in trouble state "I just did not see it coming. Suddenly ....". Remember nothing is "suddenly". It is always announced in advance. Even the current global financial crisis was being talked about in advance.

So read a book or two on strategy. Gary Hamel is a strategy author who can give you some good tips and insights.

Read, read, read!

Wednesday, June 3, 2009

SMEs - Step 9 in the business planning process

SMEs are renowned for missing the detail, but this is a detail step that makes it all worthwhile.

Once you have completed the business plan, especially Step 8 which is the Operational Strategy, you must assess the projected financial position, and then decide if the business will achieve your harvest plan. If not you have to decide whether to accept less or whether you will look elsewhere.

This important step cannot be avoided or ignored, because to do so, is to do so at your own peril. Doing this with a client once, he realised it was impossible to achieve his harvest plan with this business. His decision was to "learn to live with less". This is not an entrepreneur speaking, and frankly it is quite likely he will get exactly what he asked for, or less. Remember, it is seldom that targets are achieved or exceeded, so aiming low is a recipe for disaster.

Tuesday, May 26, 2009

SMEs - Step 8 in the business planning process

This is the second last step in the planning process. The Step 8 efforts are a lot more detailed. Essentially there are three (3) components. The first is the marketing plan, followed by the human resource plan and financial plan.

They must be done in this sequence. Furthermore the marketing plan must produce the sales budget and cost of sales, while the last step is the financial plan where the fixed costs are applied to assess the profitability of the business. Remember not to fudge the figures.

These three components will be considered in more depth in a separate exercise in coming weeks.

Sunday, May 17, 2009

SMEs - Step 6 in the business planning process

The sixth step is the SWOT analysis. Essentially this is an analysis of the firms strengths and weaknesses in the context of the PESTEL analysis.

Remember that not everything in the environmental analysis is relevant to your business.

PESTEL + Weaknesses = Threat


PESTEL + Strengths = Opportunity

The secret to the SWOT analysis is to be realistic and objective in your analysis.

SMEs - Step 5 in the business planning process

The last step in the corporate strategy is the environmental analysis, more commonly known as the PESTEL analysis.

This could arguably be done earlier in the corporate strategy process, and in fact should best be done as part of each and every step of the corporate strategy process. This environmental analysis is crucial to success, as these external factors are outside the control of management and consequently it is imperative that management are aware of their possibly impact on the corporate strategy.

Too often businesses become introspective and consequently fail to take cognisance of the external factors that surround their businesses, and then they later wonder what caused their businesses to fail.

For the uninitiated it is Political, Economic, Social/Cultural, Technological, Environmental and Legal environments which are to be monitored.

SMEs - Step 7 in the business planning process

The first six(6) steps are in essence, the corporate strategy of the firm. Step seven (7) onwards is the business strategy. This is the nuts and bolts, how it must be done strategy, in order to achieve the broader corporate strategy.

The second part of the business strategy, Step 7, is the setting of objectives. These are the specific items we wish to achieve in the current financial year. Objectives are distinguished by the fact that they have an expected completion date, and a measurable outcome. Ideally when setting objectives, the cost of achieving the objective must be measured against the value it will generate for the business, and if it shows a negative outcome, then it must be removed as an objective. Beware expending resources on objectives that add very little value to the firm.

Objectives must preferably be large, audacious and should generate a noticeably positive effect on the firm.

Sunday, May 10, 2009

SMEs - Step 4 in the business planning process

Goal setting is normally focused on the 3 year (medium term) horison. (Remember that the timelines vary at times from author to author).

Goals are our medium term intentions, and they are required to provide us with more focus on what must be done in order to achieve our vision and mission in the longer term. These require a lot of thought as they provide the bridging between the business strategy and the corporate strategy.

Goals should not be too many in number, and should bridge the present and the future. They must be well thought out.

Sunday, May 3, 2009

SMEs - Step 3 in the business planning process

So far you should have decided on a harvest strategy (Step 1) and on your business model (Step 2). In Step 3 we move to the next item that has to be addressed. Setting the Vision and Mission.

The setting of the Vision, Mission, Goals and Objectives must be seen as having a funnel effect, where the Vision is at the broadest part of the funnel, in other words the biggest picture on where the business is intended to get to in the far future, and the Objectives as the narrowest part of the funnel, the smallest picture on where the business is intended to get to in the short term future, normally considered the current financial year.

The Corporate Strategy would normally end at the completion of the PESTEL analysis (Step 5)and the Business Strategy would include Steps 6 through 11.

So to return to Step 3, the setting of the Vision and Mission. The Vision should look at where and what the enterprise wants to be in the far future. This will vary in time. Some enterprises think a 10 year horison is fine, while some, like the Japanese think a 50 year horison is fine.

The Mission statement is normally considered as a nearer term concept of where the business will want to be in say 5 years, bearing in mind that the strategy may involve enormous change in the enterprise which will evoke an evolving strategy.

Look at the following examples:

Toyota Vision
"To become the most successful and respected lift truck company in the U.S."
Toyota Mission
"To sustain profitable growth by providing the best customer experience and dealer support."

McDonalds Vision
"McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile."

McDonalds Mission
"To be our customers' favorite place and way to eat."

Hopefully this gives an insight into what a Vision and Mission statement should look like.

Monday, April 27, 2009

SMEs - step 1 in the business planning process

Once you have a basic idea of which new business you wish to start up, give a thought to your harvest strategy.

Firstly, remember that the reason for creating a new business is to create wealth for yourself, not to create a salary. The salary is simply the reward for the work you do as an employee of the business. The wealth is the reward for being an entrepreneur and taking the risk in starting the business.

But so long as the business is being run by you, it is highly unlikely that you will be able to extract the wealth you have created.  The best way to extract the wealth is to sell the business. This simple fact is one that many entrepreneurs and business owners often miss.

So before you start a business, decide what your harvest  strategy is for the new business. Who will buy a business of this sort? What basis will they value the business on? What profit and turnover levels will you have to achieve to be able to extract the amount of money you want in the selling price? Remember that the selling price is a function of turnover, profit and sometimes assets. It is not a figure you suck out of thin air. 

So understand the process and plan accordingly, and if the business cannot give you the required selling price in the allotted time, decide whether you want to proceed, or whether you want to find a different business. 

Sunday, April 19, 2009

SMEs - step 2 in the business planning process

The second step in preparing a business plan for an SME is the business model.

The business plan requires you to define what you intend to sell to whom, and how you intend to do so, with the intention of making a profit. This sounds simple but can be complex in a business with many divisions or products.

Take the example of a computer store. Is the core profit of the business achieved through selling the product or through servicing the product and the client once the warranty has ended? It is important to know this, so that appropriate pricing and marketing strategies are defined and applied in advance.

The business will fail if both sales and service both discount their prices in the mistaken belief that the other is making the business' profit. So the model is an important component in assessing the future viability of the business.

SMEs - the recession and innovation

SMEs are like large business, they too struggle during a recession. However, they have the freedom to make decisions and move in new directions quickly.

Entrepreneurs, some of whom have gone into a form of hibernation once their businesses are up and running, can resurrect that entrepreneurial drive and try to innovate within their businesses.

However, they should not ignore a major source of innovation, the staff. Too often SME owners think that their success is purely due to their own efforts, but they could be missing opportunities. Consult with your staff as a group, and individually. Get your staff involved. Explain the situation to them and ask if they have any ideas or suggestions. You will be amazed at what comes out of these sessions at times.

Do not take your staff for granted. At times you become immersed in the day-to-day problems to the point that you cannot see the opportunities for improvement. The question is surely, what do you have to lose? Nothing - so give it a bash.

Wednesday, April 15, 2009

SMEs - that recession needs more attention than you thought

The recession is an event that forces businesses to review many aspects of the business. Unfortunately, many businesses see this as a an opportunity to cut staff and expenses. As stated before, you cannot save your way out of trouble, you have to sell your way out.

However sales is a part of the marketing function, and marketing should be reviewed extremely carefully. The intention of the review practice is not to try and reduce marketing costs, but rather to evaluate how the marketing budget is spent.

Do not reduce your marketing efforts. During a recession it is critical that you maintain your marketing efforts. I recently had a discussion with a retailer who was marketing using newspaper advertising. He had no idea who the target markets were for each newspaper, and consequent to our discussions and his subsequent investigations, he found that he was advertising in the wrong newspaper.

So do a careful review of the marketing channels you are using. Evaluate your systems for assessing the success of each advertisement and ensure that the advertisements are having the desired and intended effect. Are the advertisements designed to achieve their intended goal? Is it a brand building advertisement or is it intended to generate sales? Do you know and is it appropriate? Make every spend work for you!

Dr Rob Smorfitt

Monday, April 13, 2009

SMEs - a few more tips and tricks on surviving the recession

SMEs really do have the best of it and the worst of it. They always battle to access finance for a variety of reasons both inside and outside their control. Thats the worst of it. But lets look at the other side of the coin.

SMEs have flexibility and management control. So what should we do to survive the recession.

1. Act - make decisions and do something
2. Review all costs and cut what you can. Just get rid of the fat. Do not destroy your business' capacity to meet the clients' needs. But remember, no one ever saved themselves out of trouble.
3. If it is tough for you, it is tough for almost everyone. So, contact your suppliers and see if they can provide you with better prices. They need to keep your business to survive, so they may well be prepared to offer better pricing, and perhaps even better terms. If so, take advantage.
4. Visit your clients. Change your pricing methodologies so that competitors find it difficult to compete on price as they cannot understand how you have priced to the client. Change the rules of the game so that competitors have to stop competing to understand the rules.
5. To change the pricing to the client includes the necessity to change how you do business with your client. Can you add more value? How? Offer this to the client! The more value you add, the lower the client's costs should be. The more value you add, the more difficult to unravel your pricing.

Essentially, be proactive and not reactive, and keep your creativity levels high. Read a lot to find new ideas.

Dr Rob Smorfitt

Saturday, April 11, 2009

SMEs - more tips on surviving the recession

The truth is that many businesses are started as a flash of entrepreneurial endeavour. However, once the entreprenreur is living comfortably, the fear of losing it all is deemed to be too high a risk, and so the entrepreneur simply resorts to managing the business rather than by seeking continous entrepreneurial opportunities.

It is simply required that the business owner recognise that the owning/managing of a business is not an entrepreneurial event. Entrepreneurship is an action not a state of being.

Small business owners need to find and rekindle the entrepreneurial spark that got them going. They need to understand that the risk associated with doing nothing is much higher for the business, than the introduction of entrepreneurial activities would be.

Growth and new ideas do carry risk, but the more experience you have the lower this risk is, and it is definitely a lower level risk than doing nothing represents.

In a word, surviving the recession requires ACTION. Do something. Stop whining and complaining about how tough it is. Remember that it is tough for everyone, and if your competitors are hurting, they could represent opportunities, either directly or indirectly.

Dr Rob Smorfitt

Sunday, April 5, 2009

SMEs - surviving the recession in Africa

Can SMEs survive the recession in Africa? I believe they can.

The secret is to shift away from supplying to other international markets which are contracting, and to focus on the African markets.

They may not always be as sophisticated, and certain markets may not exist, but many SMEs could make the shift to African marrkets.

Large parts of Africa are still growing despite the global financial recession. The improvement in democracy in Africa, although patchy and weak, is happening nonetheless. This is in turn leading to infrastructural investment which is stimulating the markets, together with the demand for commodities with the Chinese gladly assisting in the extraction thereof. Angola is flying as are other countries.

There is obviously credit risk among other forms of risk, but many African governments understand and recognise this, and offer their citizens insurance against the risks associated with Africa. South Africa does.

The secret is to educate Africa into understanding that there is greater prosperity in commerce than in corruption, and it is also more sustainable.

The black African diaspora need to start lobbying to change the African context, and not simply write great stories from the comfort of New York. Come back and make a difference.


Dr Rob Smorfitt

SMEs - should governments be bailing them out during the 2009 financial crisis?

Firstly I want to categorically state that I am an SME owner myself.

Secondly my answer to this question is a definite NO. Many people will query my position on this question but let me explain my position.

All economies are cyclical with good times and bad times. A recession is just a bad time that is worse than the normal cyclical bad time. Hell yes, it is difficult to survive a recession, and many SMEs will not make it. But then again many large businesses will not make it either.

Should governments be helping them all? In my mind this is a socialist approach that merely sustains, at best, mediocre businesses. All businesses are able to access the same information and market intelligence. If a business is not sufficiently opportunity aware, nor innovative enough to adapt, or resistant to change, then they deserve to make way for those businesses that are.

Sure it is difficult for those who crash and burn, at a personal, financial and psychological level. However, the true entrepreneurs will bounce back. Those that do not, do not deserve to be there.

All businesses are equal in principle. The difference lies in the management thereof, and if management fails to manage correctly they must be allowed to fail.

A recent article I read showed how a number of todays large successful businesses started during the Great Depression.

A business I am aware of were advised to reduce staff. They did so partially and then promptly re-employed, because the management were weak. The recession started to grip and new investors terminated more than 50% of the staff day 1 (among other things). Tough times for those staff, but the business will now quite likely survive. Good management leads to survival and success.

So I say to governments that the secret is not to throw good money away giving it to businesses that are quite likely to fail any way. Use that money to address the structural hole that exists which minimises bank lending to SMEs. Close the hole and increase the flow of funding to SMEs and then only those businesses that are likely to succeed will get funding and continue. This will be at a greatly increased level to current funding for SMEs but will be done purely on a commercially viable lending basis. Fund research into closing this structural hole, so that banks can lend with reduced risk.

Tuesday, March 31, 2009

SME and entrepreneur - why are they used interchangeably?

One of the most detrimental things that has happened to entrepreneurship, has been the less educated government official/academic/consultant/whatever, who has used these interchangeably.

They are not the same thing, and consequently whereas in the past large companies wanted to become more entrepreneurial and dubbed it intrapreneurial, today they want to be more innovative. Entrepreneur has lot its allure, and no pun is intended.

An academic author named Burch created a model for the entrepreurial continuum. I have since modified it and am still refining it, but it is still worth looking at, in an attempt to try get people to understand that entrepreneur and SME are not the one and the same. Readers can request and receive both Burch and my version my emailing me on

The key however, is that there are different types of “entrepreneur”, many of which are not entrepreneurial. According to my modified Burch, I believe that only once they reach franchisor level do they begin to become opportunity aware. I have listed the different ones below with some key characteristics.

1. Survivalist – uneducated, unskilled – resorts to selling sweets cooldrinks vegetables, bread ie. Basics and often found in poor developing countries. Do not perceive themselves as entrepreneurs.
2. Salary replacement entrepreneur – either retrenched, fired or similar, so therefore often semi skilled or skilled or educated. Starts or buys a business based purely on its ability to replace the salary he lost. Do not perceive themselves as entrepreneurs.
3. Lifestyle entrepreneur – starts as a salary replacement entrepreneur. However, “by accident and with little effort” finds that very little additional effort generates an increase in income. Then uses this income to buy toys - boats, vacation homes, motorbikes, sports cars. Never wants to earn more than to be able to afford the toys. Seldom move beyond this point. Do perceive themselves as entrepreneurs, but they are not. Large egos.
4. Small business manager/franchisee – to be really entrepreneurial, strategy and marketing are key skills for the entrepreneur. This level of entrepreneurship, as do the previously described ones, lack these skills. They have the skills and/or education to manage but do not look for opportunities beyond the initial franchise. Some of these do end up very wealthy and do become entrepreneurial to the extent of becoming portfolio entrepreneurs, but they are few and far between. Do perceive themselves as entrepreneurs.
5. Copycat entrepreneur – entrepreneurial to a degree but looks for others to lead and then follows closely behind. Not good at been innovative and creating opportunities or identifying real opportunities. Do perceive themselves as entrepreneurs.
6. Franchisor – Once again entrepreneurial to a fairly large degree but seldom looks for other opportunities beyond the initial franchise created. If they do they tend to stay within a similar area of expertise eg fast food Do perceive themselves as entrepreneurs..
7. Inventrepreneur – these people are your inventors and innovators. Always looking at everything trying to make it better. They create their own opportunities despite a fairly high failure rate, particularly in the early days; Often lack business skills but understand things at a user level and what the user wants. See themselves as inventors rather than entrepreneurs.
8. Serial entrepreneur – always looking for opportunities. Start and sell or buy and sell businesses regularly, but never own more than one at a time. Very hands on.
9. Portfolio entrepreneur - always looking for opportunities. Start and sell or buy and sell businesses regularly. Own more than one at a time. Very hands off. Employs managers or partners. Have more time available and become a lot more opportunity aware and this opportunity awareness increases as they spend more time strategising.
10. Angel funder – very entrepreneurial but not very opportunity aware. Often focus on certain key industry sectors. Similar to portfolio entrepreneur but they often are funding other businesses as part of a group of funders to reduce risk. They do not look for opportunities but rather become more adept at evaluating opportunities presented by entrepreneurs seeking funding.
11. Venture capitalist – very entrepreneurial but not very opportunity aware. Often focus on certain key industry sectors. Similar to portfolio entrepreneur except they are looking to create large enterprises. They do not look for opportunities but rather become more adept at evaluating opportunities presented by entrepreneurs seeking funding.

Regards Rob Smorfitt
Hi everyone.

I have to apologise for my lack of effort, but I had a PhD to complete, which I have now done.

I will now resurrect my SME related articles here, and my African related articles on

Please feel free to e-mail me article suggestions, requests or questions at

Rob Smorfitt